Deck 29: Essay

Question 1

The existence of money makes trade easier.How is it that money can also increase the standard of living?

Answer 1

Medium of exchange,store of value,and unit of account

Question 2

What does it mean for the Fed to be the "lender of last resort?"

Answer 2

Long terms allow Fed Board of Governors independence from short-term political pressures when formulating monetary policy.

Question 3

How does the Fed Open Market Committee increase the money supply?

Answer 3

open-market operations

Question 4

The primary tool used by the Federal Reserve to change the money supply is -----.

Question 5

Why do Federal Reserve Board of Governors have long (14 year)terms?

Question 6

The Fed ---- bonds when it conducts an open-market purchase.This action ----- the money supply.

Question 7

Money,such as gold,with some intrinsic value is called -----.Money with no intrinsic value is called -----.

Question 8

You believe the dollars you have today will be accepted in the future in exchange for goods and services.Which function of money does this illustrate?

Question 9

In many circumstances,prisoners are not allowed to possess cash.Does this mean there is no money in prison? Explain.

Question 10

What are the functions of money?

Question 11

List the two main functions performed by the Fed?

Question 12

The ease with which an asset can be converted into the economy's medium of exchange is known as -----.

Question 13

List two examples of commodity money.

Question 14

Why is the president of the New York Fed always a voting member of the FOMC?

Question 15

One of the features of money is its store of value.However,most people do not hold their wealth as currency.Given that currency is the most liquid type of asset,why don't people hold all their wealth as currency?

Question 16

What does the "double coincidence of wants" refer to?

Question 17

If you withdraw $500 from your savings account and deposit it in your checking account,then M1 will change by ----- and M2 will change by -----.

Question 18

Monetary policy is made by the ------.

Question 19

How are Federal Reserve Board Governors selected?

Question 20

The prices of goods at a grocery store are listed in dollars.Which function of money does this illustrate?

Question 21

Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"

Question 22

Describe how the use of leverage affects the impact of bank investments.

Question 23

A bank has $30,000 in deposits and has $5,400 in reserves.What is its reserve ratio?

Question 24

When banks decide to increase their reserves,the money supply will ----- (holding all else constant).

Question 25

Suppose a bank purchases $50 of government securities using funds from reserves.How much do bank assets change as a result of this transaction?

Question 26

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Question 27

Monetary policy has an important influence on ----- and ----- in the short run.

Question 28

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits.Describe why this statement is or is not true.

Question 29

The money multiplier is ----- when the reserve ratio is 12.5 percent.

Question 30

What is bank insolvancy?

Question 31

A bank has $1000 in deposits and maintains a 12 percent reserve ratio.Its reserves are $-----.

Question 32

Suppose the required reserve ratio is 20%.What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general,why might the actual amount of total money creation be less than the maximum?

Question 33

What is the change in the money supply when the Fed purchases $100 worth of bonds in a 100-percent-reserve banking system?

Question 34

When the Fed purchases government bonds the money supply ----- and the federal funds rate -----.

Question 35

A bank operates with reserves of $100,loans of $300 and securities of $100.The bank's only liability is deposits of $400 since it has zero debt.Calculate the bank's leverage ratio.

Question 36

Suppose a bank has $3,000 in reserves,$25,000 of deposits,and a 10 percent reserve requirement.What is the amount of excess reserves?

Question 37

Discuss why the Fed rarely changes the reserve requirements.

Question 38

In a fractional reserve economy where the required reserve ratio is 10%,must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Question 39

What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is 14 percent assuming banks hold no excess reserves?

Question 40

Suppose a bank is operating with a leverage ratio of 20.What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Question 41

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

Question 42

When the federal funds rate is below the target rate,the Fed will ----- bonds.This action will ----- the money supply.

Question 43

There is a short-run tradeoff between inflation and unemployment.

Question 44

Which of the three functions of money are commonly met by each of the following assets in the U.S.economy?
a.paper dollar
b.precious metals
c.collectibles such as baseball cards,stamps,and antiques

Question 45

The ----- is the interest rate at which banks make overnight loans to other banks.

Question 46

Are credit cards and debit cards money? What's the difference between credit and debit cards?

Question 47

Economists argue that the move from barter to money increased trade and production.How is this possible?

Question 48

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Question 49

The presidents of the regional banks serve as voting members of the FOMC on a rotating basis.

Question 50

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

Question 51

Prices rise when the government prints too much money.

Question 52

Name three actions the Fed can take to increase the money supply.

Question 53

Trace the effects on the money supply when the Fed decreases the discount rate.

Question 54

What is the difference between money and wealth?

Question 55

What does the text mean by the question,"Where Is All the Currency?" How does it answer the question?

Question 56

The Fed began paying interest on reserves in October 2008.Holding all else constant,what effect would this have on the money supply?

Question 57

The interest rate charged by the Fed to member banks is called the -----.

Question 58

What is the Term Auction Facility?

Question 59

List two reasons why the Fed can not control the exact size of the money supply.

Question 60

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

Question 61

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure your balance sheet balances.

Question 62

If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.

Question 63

During the early 1930s there were a number of bank failures in the United States.What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases.Would these purchases have reversed the change in the money supply and helped banks? Explain.

Question 64

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.